Understanding Hard Money Loan Options

Real estate investors rely on the properties that they purchase to produce income. While a strong buyer’s market certainly favors investors, it does take a great deal of financial savvy to successfully navigate real estate investments. After all, conventional financing, such as the FHA loans used to purchase residential homes, often aren’t available to investors. Instead, many investors turn to private money lenders – also known as hard money lenders – to finance their purchases.

Hard money loans, which are also called private money or equity-based loans, are designed to meet the needs of real estate buyers who can’t use traditional financial products. In many cases, banks and other lending institutions won’t finance real estate purchases because they don’t meet stringent criteria about the types of properties that qualify for financing. In other cases, individuals are unable to secure financing because of past foreclosures or credit problems.

Buyers and investors who want to purchase real property but don’t qualify for traditional financing may be able to utilize this type of private financing. Before you apply for one of these private loans, it’s essential to understand what types of products are available.

Fix-and-Flip Loans

True to their name, fix-and-flip loans are designed for investors who want to buy properties, rehab them and sell them at a profit. These homes often don’t qualify for FHA financing because they need too much work. Fix-and-flip loans are widely used across the nation and can be utilized by both new and experienced investors. Most hard money loans designed for fix-and-flip properties can be used to finance both the purchase price and the cost of repairs. These loans may also be referred to as residential or commercial rehab loans.

Bridge Loans

Bridge loans are a type of private money loan used by business owners to cover gaps between their operating expenses and available funds. A business owner might choose a bridge loan to pay a big COD or to own a property free and clear. These loans are also a good alternative when a bank won’t refinance a mortgage.

Ground-Up Construction Loans

Some investors want to build innovative properties but can’t find the financing to do so. Private financing for ground-up construction can provide the funds needed to purchase land and complete construction projects. These types of loans are often used by investors and business owners who want to build specialty properties that are difficult to appraise or are perceived by traditional lenders as high risk.

Hard Money Loans – And Other Non-Traditional Methods in Obtaining Financing For Your Business

A hard money loan allows the borrower to receive a loan based on the value of real estate he or she owns. The real estate is used as collateral. These loans are issued at a much higher interest rate than conventional loans and are not given by any commercial banks but instead are arranged by private investors.

Since the Hard Money loans are made by private investors a borrower’s credit score is not consider due to the fact that the loan is secured by the value of the property that is being put up as collateral. However, with the current state of the real estate market, hard money loans are not that easy to obtain these days since the real estate market has soften and property is selling for far less than what it was a couple of years ago.

Below are a couple of other non-traditional ways to get financing for your business:

Credit card factoring or Merchant advance for small businesses
Credit card factoring also known as a Merchant advance is when a lender gives your business cash upfront based on your future credit card sales. It is paid back by using a percentage of those future credit card sales until the balance is paid in full. The actual amount that the borrower can receive is based upon the business’s monthly credit card receipts.

General requirements for this type of financing:

o You must have owned the business for at least 6 months
o Your business processes a minimum of $2,000 or more in monthly Credit Card sales
o You have no unresolved bankruptcies
o You have at least one year remaining on your business lease

Account receivables or Invoice factoring

Another popular method of business financing is the selling of Account Receivables or Invoices. Businesses that extend credit terms to their customers ie: net 20, or net 30, allows customers some breathing room to pay their bills, however, this arrangement make it necessary for businesses to wait for payments and can sometimes have a stifling affect on cash flow.

A factoring company purchases receivables or invoices by providing you with a cash advance, thus, infusing your company with immediate cash, improving its financial situation. This advanced is any where from 70% to 85% of the value of the invoices or receivables. Most factoring companies charges a fee starting from 2% and it goes up from there.

So, if your business has been decline by traditional lenders, don’t despair help is on the way through these alternative financial sources.